1998 Nonemployee Director Stock Option Plan

EXHIBIT 10.N


DONALDSON COMPANY, INC.
1998 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN


1. Purpose of the Plan. This plan shall be known as the "Donaldson Company, Inc. 1998 Nonemployee Director Stock Option Plan" and is hereinafter referred to as the "Plan." The purpose of the Plan is to promote the interests of the Company by enhancing its ability to attract and retain the services of experienced and knowledgeable outside directors and by providing additional incentive for such directors to increase their interest in the Company's long-term success and progress.


2. Definitions. As used herein, the following definitions shall apply:


(a) "Board" shall mean the Board of Directors of the Company.


(b) A "Change in Control" of the Company shall have occurred if (i) any "person," as such term is used in Sections 13(d)and 14(d) of the Exchange Act (other than Donaldson, any trustee or other fiduciary holding securities under an employee benefit plan of Donaldson or any corporation owned, directly or indirectly, by the shareholders of Donaldson in substantially the same proportions as their ownership of stock of Donaldson), either is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Donaldson representing 30% or more of the combined voting power of Donaldson's then outstanding securities, (ii) during any period of two consecutive years (not including any period prior to the effective date of this Plan), individuals who at the beginning of such period constitute the Board of Donaldson, and any new Director (other than a Director designated by a person who has entered into an agreement with Donaldson to effect a transaction described in clause (i), (iii) or (iv) of this subparagraph) whose election by the Board or nomination for election by Donaldson's shareholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof, unless the approval of the election or nomination for election of such new Directors was in connection with an actual or threatened election or proxy contest, (iii) the shareholders of Donaldson approve a merger or consolidation of Donaldson with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Donaldson outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of Donaldson or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of Donaldson (or similar transaction) in which no "person" (as defined above) acquires more than 30% of the combined voting power of Donaldson's then outstanding securities or (iv) the shareholders of Donaldson approve a plan of complete liquidation of Donaldson or an agreement for the sale or disposition by Donaldson of all or substantially all of Donaldson's assets or any transaction having a similar effect.


(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.


Nonemployee Director Stock Option Plan


(d) "Common Stock" shall mean the Common Stock, $5 par value, of the Company.


(e) "Company" or "Donaldson" shall mean Donaldson Company, Inc. and its Subsidiaries.


(f) "Director" shall mean a member of the Board.


(g) "Employee" shall mean any person, including officers and directors, employed by the Company or any Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company.


(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.


(i) "Market Value" of a share of Common Stock shall mean the closing sale price of the Common Stock on such date on the New York Stock Exchange (or on the principal exchange on which it is then listed if other than the New York Stock Exchange), as reported in The Wall Street Journal, or if there was no sale on that date, then on the nearest preceding date on which a sale occurred.


(j) "Option" shall mean a stock option granted pursuant to the Plan.


(k) "Optionee" shall mean an Outside Director who receives an Option.


(l) "Outside Director" shall mean a Director who is not an Employee.


(m) "Subsidiary" shall mean any corporation or other entity of which a majority of the voting power is owned, directly or indirectly, by Donaldson, or which is otherwise controlled by Donaldson.


3. Administration of Plan. The Plan shall be administered by a committee (the "Committee") of three or more persons appointed by the Board of Directors of the Company and constituted so as to satisfy the legal requirements, including any such requirements for nonemployee directors, imposed by Rule 16b-3 of the Exchange Act. All determinations of the Committee shall be made by a majority of its members. Grants of Options under the Plan and the amount and nature of the awards to be granted shall be automatic as described in Section 7, and no person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of shares of Common Stock to be covered by Options granted to Outside Directors. However, all questions of interpretation of the Plan or of any Options issued under it shall be determined by the Committee, and such determination shall be final and binding upon all persons having an interest in the Plan.


4. Eligibility. Each Outside Director of the Company who shall be a member of the Board on December 1 of each year shall be eligible to participate in the Plan.


5. Stock Subject to the Plan. Subject to adjustment as provided in Section 11 hereof, the maximum aggregate number of shares of Common Stock with respect to which Options


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